Strains on Display in Hamburg Reflect Diverging Paths

French President Emmanuel Macron, German Chancellor Angela Merkel and US President Donald Trump in Hamburg (John MacDougall/Pool Photo via AP)

The Group of Twenty (G20) summit in Hamburg tactfully hosted by Angela Merkel marks the twelfth meeting of leaders since the onset of the global financial crisis in the autumn of 2008.

The global economic outlook is markedly different today compared to November 2008 when George W. Bush hosted the first meeting of leaders in Washington. Then, panic seized markets and the global financial system was at risk of becoming dysfunctional; output, employment and trade were collapsing around the globe. By comparison, recent economic performance has been strong, albeit below pre-crisis levels of growth.

Despite the much-improved economic conjuncture, however, the German chancellor’s challenge as chair of the G20 was perhaps more daunting than that faced by leaders nine years ago. This is because the challenge today is not the risk of dysfunctional financial markets; rather, it is the risk of dysfunctional international cooperation. And, remarkably, almost inconceivably, the biggest source of this risk is the president of the United States.

In pursuing an "America First" foreign policy, Donald Trump not only echoes the language of isolationists and crypto-fascists of the interwar period of the last century but seemingly adopts their policies as well.

Consider the key topics that proved contentious in the final G20 communique: climate change and international trade. Trump's withdrawal from the Paris climate accord can, in some respects, be likened to the US Senate's refusal following World War I to ratify the United States’ entry into the League of Nations — Woodrow Wilson's attempt to create an international organization to police international affairs and prevent another "war to end all wars." In the end, the League went forward. But without US participation, the nascent organization was moribund and later proved incapable of stopping fascist aggression.

The sorry state of international trading arrangements in the interwar period contributed to this failure. This is because trade disputes and the imposition of beggar-thy-neighbour tariffs — which begat retaliatory measures and resulted in a steady emasculation of trade flows — led to a decline of international cooperation in other spheres. As country after country adopted measures to maintain employment at home by limiting imports from abroad, the comity of nations was eroded. At the same time, conscious efforts to secure preferential long-term access to strategic raw materials and exclude the access to others, together with preferential trade arrangements, increased tensions.

It was for these reasons that Franklin D. Roosevelt made open access to raw materials and transparent trade arrangements a cornerstone of the Atlantic Charter when, on the eve of America's entry into World War II, he met Winston Churchill in what one historian refers to as "The First Summit."* These goals formed the basis of postwar international economic and foreign policy; every American president since has supported them. To be sure, presidents have in the past used or threatened the use of protectionist trade measures to secure American interests, and Richard Nixon unilaterally rewrote the international rules on exchange rates, but all former occupants of the White House have endorsed the principle that international trade is beneficial both to the United States and the global economy more broadly.

Trump seemingly does not. His rhetoric may yet prove to be dissembling, intended to secure better deals for the United States, and his actions are likely to be constrained by congressional politics. Regardless, he has injected considerable uncertainty about US trade policy going forward. In the process, he may be undermining US interests: as Merkel has indicated, other countries are not waiting for the United States. Japan and the European Union unveiled a draft trade agreement on the margins of the G20 meeting.

All this is not to suggest that international efforts to fight climate change without US participation are destined to fail or that Trump necessarily poses an existential threat to the global trading system. Indeed, the extent to which US cities and states have indicated their intention to adhere to the climate change protocols, with or without Washington, is quite remarkable. Yet, those efforts are likely to be less effective without the support of the federal government.

Similarly, if the United States is no longer engaged as a responsible partner, it would be more difficult to keep the rules-based trading system that has been built and which has served the global economy so well over the past 70 years or so. That is the real danger. The system, however imperfect it may be, has served as a check on unilateral actions and thereby helped to prevent tit-for-tat trade disputes from escalating into all out trade wars. And this has helped to foster a remarkable period of economic growth and development around the globe.

For the first time, arguably, since it was created in the wake of global war, the system is under attack by a US president and his administration. Trump was elected by riding (or inciting, as the case may be) a populist wave fueled by discontent that globalization— greater economic and financial integration — had failed large swaths of American workers. The success of his campaign speaks to the polarization of US politics. The same phenomenon is evident in other major economies.

This is what has made Merkel's challenge so tough.At the first G20 leaders' meeting almost a decade ago, the challenge was to calm markets, prevent further financial market dysfunction and lay the foundations for economic recovery. G20 leaders did so by committing their central banks to provide liquidity to financial markets in desperate need of it, agreeing to concerted fiscal stimulus to support aggregate demand, and by eschewing protectionist trade measures that might trigger retaliation and unleash a destructive trade war that would only add uncertainty. As the Pittsburg summit declaration a year later noted, "it worked." The collapse in output, employment and trade flows that threatened another Great Depression was arrested.

The success of G20 leaders then sprung from a single source: because all faced a common threat, all had an incentive to cooperate to prevent what might have been an economic, social and political catastrophe.

In contrast, the global economy is in its eighth year of recovery. And yet, in a key respect, Merkel's task as the host leader has been far more complex than that faced by Bush in 2008 or Gordon Brown and Barack Obama after him. The effectiveness of international groupings is largely determined by the intersection of members' interests. In this respect, Merkel is being forced to deal with the polarization of politics that, if unchecked, would lead ineluctably to a polarization of policies among G20 members. Signs of such strains are evident in US positions on climate change and trade. Her success or failure in this endeavour will have potentially profound implications for international cooperation and the future of the G20 itself.

In coming days, observers will undoubtedly parse the results of the Hamburg summit for signs that Germany has by default taken on the mantle of leadership that the United States, under Trump, is seemingly determined to renounce. The chancellor may well prefer not to have that responsibility; yet the test of leadership is doing what must be done for the common good. The importance of this should not be dismissed. There are huge challenges facing the international community, not least of which is climate change and the problems that would accompany it, and threats to the system of international security not seen in decades. The world awaits a verdict.

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* Wilson, Theodore A. 1991. The First Summit: Roosevelt and Churchill at Placentia Bay, 1941. Lawrence: University of Kansas Press

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